Extending the price constraints of betting markets

Gustav Axén and Dominic Cortis

Journal of Behavioral and Experimental Finance, 2019, vol. 23, issue C, 181-188

Abstract: The no-arbitrage conditions on betting markets are well-known and a prerequisite for the market to adhere to elementary rationality assumptions. In this paper, we also apply the criteria that no asset should be dominated if the pricing is rational, and show that the market odds need to adhere to additional constraints to account for this. Our developments illustrate an important difference between the cases of back and lay bets that, remarkably, is resolved with analogous results. The novel results can be used as constraints in modeling of betting markets, an aid in optimizing betting portfolios, or as empirical tests of bettor rationality.

Keywords: Betting; Arbitrage; Prediction markets; Dutching; Incomplete market (search for similar items in EconPapers)
JEL-codes: C62 G11 G12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:23:y:2019:i:c:p:181-188

DOI: 10.1016/j.jbef.2019.07.001

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